Time value - An Iowa state savings bond can be converted to $250 at maturity 5...
Time value - An Iowa state savings bond can be converted to $250 at maturity 5 years from purchase. If the state bonds are to be competitive with U.S. savings bonds, which pay 3% annual interest (compounded annually), at what price must the state sell its bonds? Assume no cash payments on savings bonds prior to redemption. Ignore taxes.
Question: The state must sell its bonds for $? (Round to the nearest cent.)
Homework Answers
Single Payment Present Worth Factor (PWF)=(P/F i, N)=1/((1+i)^N)
i=Interest Rate=3%=0.03
N=Number of years=5
PWF=1/(1.03^5)=0.862609
Current Selling Price =$250*PWF=$250*0.862609=$215.65
|
The state must sell its bonds for |
$215.65 |
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